UGG: Default Judgment and Treble Damages Entered Against Defendant Where Defendant Failed to Participate in Discovery

August 26, 2014

Plaintiff Deckers Outdoor Corporation ("Plaintiff") alleged that Defendants Superstar International, Inc. and Sai Liu ("Defendants") produce, advertise, and sell products that infringe Plaintiff's design patents for UGG boots. The district court previously ruled that default judgment was appropriate, considering both the procedural requirements of Federal Rule of Civil Procedure 55(b) and the factors laid out in Eitel v. McCool, 782 F.2d 1470, 1471-72 (9th Cir. 1986). In the previous order, the district court left open what relief Plaintiff could recover.

The district court then addressed whether the Plaintiff should be entitled to treble damages. As explained by the district court, "[u]nder 35 U.S.C. § 284 ("Section 284"), when a Court finds that a patent has been infringed, 'the court shall award the claimant damages adequate to compensate for the infringement, but in no event less than a reasonable royalty for the use made of the invention by the infringer, together with interest and costs as fixed by the court.' One way damages may be measured under Section 284 is by the patentee's lost profits. Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301, 1324 (Fed. Cir. 2009). The burden of proving damages is on the patentee. Id."

Here, the district court noted that "Plaintiff discovered the sale of the infringing products after its investigators bought twelve pairs of infringing boots from defendant Superstar International. (Declaration of Leah Evert-Burks, Dkt. No. 42-2, ¶ 4.) Plaintiff's lost profits from the sale of those twelve pairs of infringing boots is approximately $1,584.00. (Id. ¶ 6.) Because Plaintiff was unable to get discovery from Defendants, this is the only information Plaintiff has about the extent of Defendants' infringing activities.(Motion at 6.)"

Addressing the issue of treble damages, the district court stated that Section 284 allows a court to "increase the damages up to three times the amount found or assessed." "Section 284 does not give criteria for when damages should be increased, but the Federal Circuit has stated that '[b]ecause increased damages are punitive, the requisite conduct for imposing them must include some degree of culpability.' Jurgens v. CBK, Ltd., 80 F.3d 1566, 1570 (Fed. Cir. 1996). An act of wilful infringement satisfies this culpability requirement. Id. If a Court finds culpable conduct, the Court 'then determines, exercising its sound discretion, whether, and to what extent, to increase the damages award given the totality of the circumstances.' Id."

The district court then concluded that the Plaintiff alleged that Defendants advertised and sold the infringing boots "knowingly and intentionally" and that this conduct "constitute[d] willful acts and intentional infringement." (Complaint ¶¶ 20, 24.) These allegations are accepted as true on default. Derek Andrew, Inc. v. Poof Apparel Corp., 528 F.3d 696, 702 (9th Cir. 2008)

As a result, the district court analyzed whether this conduct, including the failure to participate in discovery, justified the increase in the damage award. "Since the Court has found culpable conduct from wilful infringement, the Court turns to whether to increase the damages award given the totality of the circumstances. In considering the totality of the circumstances here, the Court considers Defendants' conduct throughout this litigation. Although Defendants filed an answer in this case, they then completely failed to participate in discovery. Magistrate Judge Walsh granted two motions to compel (Dkt. Nos. 19, 20) and ordered Defendants to pay $1,750 in sanctions. (Dkt. No. 24.) When Defendants didn't pay the sanctions or respond to the discovery, Plaintiff asked for an order requiring Defendants to show cause why they should not be held in contempt of Judge Walsh's discovery order. (Dkt. No. 25.) At the hearing on that matter, "Defendant's counsel inform[ed] the Court that he has difficulty communicating with his client and understands that the client is no longer interested in defending against the action." (Dkt. No. 27.) Judge Walsh imposed an additional $1,000 in sanctions and recommended to this Court that Defendants' answer be stricken and default be entered. (Id.) Defendants' answer was stricken and default entered. (Dkt. No. 29.)"

Accordingly, the district court determined that an increase in the damages was warranted. "Not only was Defendants' failure to respond to discovery or otherwise participate in this case so egregious that the Court found it appropriate to strike Defendants' answer, it also precluded Plaintiff from getting information on the extent of the infringement. Under the circumstances here, the Court concludes that it is appropriate under Section 284 to increase the damages three times the amount found."

The district court also found that awarding attorneys' fees was appropriate: As the Supreme Court recently held, the word "exceptional" in this statute should be interpreted according to its ordinary meaning. Octane Fitness, LLC v. ICON Health & Fitness, Inc., 134 S. Ct. 1749, 1756 (2014). Thus an "exceptional" case "is simply one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Id. "District courts may determine whether a case is 'exceptional' in the case-by-case exercise of their discretion, considering the totality of the circumstances." Id.

Indeed, the district court found the conduct particularly egregious here: "as described in Section 1, there was not only willful infringement, but also misconduct during litigation so extreme that it led to Defendant's answer being stricken. Such misconduct is rare and it, under the totality of the circumstances of this case, makes this case "exceptional." Thus the Court finds that awarding attorney fees is appropriate."

Deckers Outdoor Corp. v. Superstar International, Inc., et al., Case No. CV-13-0566-AG (PJWx)

The authors of www.PatentLawyerBlog.com are patent trial lawyers at Jeffer Mangels Butler & Mitchell LLP. We represent inventors, patent owners and technology companies in patent licensing and litigation. Whether pursuing patent violations or defending infringement claims, we are aggressive and effective advocates for our clients. For more information contact Stan Gibson at 310.201.3548 or SGibson@jmbm.com.